US STRATEGY – FOLLOW THE LEADER

After setting off yesterday’s meltdown in the S&P500 (down 3.1% yesterday), China closed down another -1.2% overnight to new YTD lows of -26.8%.  China continues to flash a very negative leading indicator for global growth. 

 

The Conference Board issued a press release stating that due to a calculation error the originally reported April LEI for China was incorrect. The correct April LEI for China was +0.3% vs. originally reported +1.7% and March +1.2% and February +0.4%. This change raised questions about the strength of economic growth in China.

 

Copper is confirming the slowing growth story, led by China.  Yesterday, copper traded down 5% to close at $2.93 per pound.  Year-to-date, copper is down 12.5% and is broken on TRADE and TREND.   The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade ($2.84) and Sell Trade ($2.98).

 

This down move was quickly compounded when the Conference Board released the June number in the US.  After rising for the past 3 months, consumer confidence fell to 52.9 in June; much lower than consensus 62.5 and prior 62.7 (revised from 63.3). The decline was driven largely by increasing concerns related to jobs and income.  Present Situation was 25.5 vs. prior 29.8 (revised from 30.2); Expectations was 71.2 vs. prior 84.6 (revised from 85.3).

 

The Euro moved lower by 0.7%, but is rallying in early trading today.  The EURO was pressured on concerns surrounding the expiration of the ECB’s 12 month liquidity facility and the consumer uprising in Greece.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade ($1.22) and Sell Trade ($1.24).

 

Treasuries were stronger yesterday; the yield on the 2-yr is within record territory and the yield on the 10-yr dropped below 3%. The dollar index traded up 0.4% on the day and the Hedgeye Risk Management models have the following levels for the USD – Buy Trade (85.28) and Sell Trade (86.57).  The VIX surged 17.1%, and is now up 26.2% over the past five trading days.  The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (30.87) and Sell Trade (39.90).

 

Yesterday, all sectors were down led by Energy (XLE -3.9%) and Materials (XLB -3.7%).  On a relative basis, the best performing sectors were Consumer Staples (XLP - 1.6%) and Healthcare (XLV -1.8%). 

 

The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,226) and Sell Trade (1,258). 

 

After trading down to $76 yesterday, crude is trading higher for the first time in three days.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (74.83) and Sell Trade (79.36).  

 

As we look at today’s set up for the S&P 500, the range is 67 points or 2.2% (1,018) downside and 4.2% (1,085) upside.   Equity futures are trading above fair value, on a light day for macro news.    

 

Howard Penney

 

US STRATEGY – FOLLOW THE LEADER - S P

 

US STRATEGY – FOLLOW THE LEADER - DOLLAR

 

US STRATEGY – FOLLOW THE LEADER - VIX

 

US STRATEGY – FOLLOW THE LEADER - OIL

 

US STRATEGY – FOLLOW THE LEADER - GOLD

 

US STRATEGY – FOLLOW THE LEADER - COPPER


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